Question

QUESTION 13 The cost of capital is defined as the a. simple average of the interest rates of all debt outstanding. b. simple average of the cost of debt and equity. c weighted average of the interest rates of all debt outstanding. d. weighted average of the cost of debt and equity

Answer 1

1. The cost of capital is defined as weighted average of the cost of debt and equity. Hence option d is correct. All other options are incorrect and do not define the cost of capital which is the weighted average of overall cost to the company.

2. Option b which states that expenses are outflows of assets or liabilities incurred from peripheral or incidental transactions of an entity is the correct option.

3. In order for a liability to exist there must be an obligation to pay cash in the future. Liability is a future obligation arising out of past or present events .Hence option d is correct.

4. The operating cycle always is one year in duration is incorrect statement. There is no such condition. Hence option b is correct. All other options are correct.